129 F. Supp. 3d 1271
N.D. Ala.2015Background
- Knowles owned a mortgaged Birmingham, AL home; Green Tree (assignee) was named as mortgagee/loss payee on the homeowner’s insurance policy. Knowles owed > $140,000 on the loan.
- A 2011 tornado damaged the property. Standard Fire offered $63,427.73 before Knowles retained counsel; after suit by Knowles, Standard Fire settled for $87,500 in 2014 (an increase of $24,072.27 over prior offers).
- Knowles’s attorneys (Acker and Hayes) claim an attorney’s fee lien and recovery under Alabama’s “common fund” doctrine for work that produced the increased settlement. They seek priority over Green Tree and the United States (IRS) tax lien.
- Green Tree moved for summary judgment asserting its contractual right as mortgagee/loss payee to the insurance proceeds and that attorneys’ claims cannot defeat that contractual priority; the United States did not contest.
- The court found undisputed that the mortgage clause created a separate contract giving the mortgagee the first right to proceeds to the extent of the debt and granted Green Tree summary judgment, denying the attorneys’ and Knowles’s claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether attorneys may recover from full insurance proceeds under the common‑fund doctrine | Attorneys: their litigation directly increased the fund and they should be paid from proceeds (common fund) | Green Tree: mortgagee’s contractual loss‑payable clause created a separate right to proceeds; attorneys only incidentally benefited mortgagee | Denied — attorneys failed to show the common‑fund elements; Green Tree’s contract right prevailed |
| Whether attorneys’ lien under Ala. Code § 34‑3‑61 attaches to the insurance proceeds | Attorneys: state statutory lien and contingency contract create lien superior to mortgagee | Green Tree: lien cannot attach to funds that never belonged to client; mortgagee’s prior contractual right pre‑appropriated proceeds | Denied — no lien can attach to proceeds belonging solely to mortgagee; even if attached, statute makes attorney lien subordinate to tax liens |
| Priority among mortgagee, IRS tax lien, and attorney lien | Attorneys: lien should have priority over mortgagee | Green Tree: mortgage recorded before IRS lien; mortgage trumps tax lien; statute makes attorney lien inferior to tax liens | Green Tree’s mortgage is first in time and wins; IRS tax lien is subordinate to mortgage; attorney lien (if any) would be inferior to tax lien and thus lose |
| Waiver by mortgagee from inaction/participation in settlement | Attorneys: Green Tree knew of suit/mediations and didn’t assert loss‑payee control — waived rights | Green Tree: had contractual right to proceeds and was not required to assert participation; no waiver shown | Denied — no legal authority or facts sufficient to find waiver; contractual priority remains |
Key Cases Cited
- Smith v. Aetna Ins. Co., 410 So.2d 11 (Ala. 1981) (standard/New York mortgage clause creates separate contract in favor of mortgagee)
- Alabama Farm Bureau Mut. Cas. Ins. Co. v. Williams, 530 So.2d 1371 (Ala. 1988) (mortgagee has first right to insurance proceeds to extent of debt)
- Henley & Clarke v. Blue Cross‑Blue Shield of Alabama, 434 So.2d 274 (Ala. Civ. App. 1983) (explaining limits of common‑fund doctrine; incidental benefits insufficient)
- Day v. Ramada Inn S., 527 So.2d 130 (Ala. Civ. App. 1987) (common‑fund requires a court‑controlled fund and direct benefit to charged party)
- First Nat. Bank of Hamilton v. Estes, 479 So.2d 1275 (Ala. Civ. App. 1985) (court allowed attorney fees from recovery when judgment was solely for insured — discussed but treated with caution by later Supreme Court)
- Mitchell v. Huntsville Hosp., 598 So.2d 1358 (Ala. 1992) (Alabama Supreme Court disapproved treating Estes as broad common‑fund precedent; held general rule — no fee against hospital’s insurance proceeds in that context)
- U.S. By & Through I.R.S. v. McDermott, 507 U.S. 447 (U.S. 1993) (priority governed by first‑in‑time; federal tax lien priority depends on perfection date)
- Sureck v. U.S. Fid. & Guar. Co., 363 F.Supp. 807 (W.D. Ark. 1973) (loss‑payee’s contractual pre‑appropriation of proceeds defeats attorney’s claim)
- Leiden v. Gen. Motors Acceptance Corp., 136 Ga. App. 268 (Ga. Ct. App. 1975) (attorney lien statute does not create lien on funds belonging to a mortgagee/loss payee)
- Fuller v. Stonewall Cas. Co. of W. Va., 172 W. Va. 193, 304 S.E.2d 347 (W. Va. 1983) (attorney’s charging lien attaches only to client’s interest; loss payee’s separate contractual right prevails)
- Richards v. La. Citizens Prop. Ins. Corp., 623 F.3d 241 (5th Cir. 2010) (contrasting decision — held Louisiana attorney lien could have priority; court here found it unpersuasive for Alabama law)